The yen was 0.5 percent from a two- month high against the dollar as a rally in stocks around the world spurred speculation the Bank of Japan (8301) will refrain from additional monetary easing at a policy meeting this week.
The euro was 0.4 percent from the strongest in a month versus the greenback after German Chancellor Angela Merkel’s government backed the European Central Bank’s bond-buying plan. Australia’s dollar appreciated to a four-month high after the nation’s central bank kept interest rates at 3.5 percent at a policy meeting today.
“The Bank of Japan looks set to keep policy unchanged,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “Without any impediment from the Bank of Japan, we’ll see more of the same, that gradual grind lower in the next few sessions and coming months for dollar-yen.”
The yen was little changed at 78.27 per dollar at 8:06 a.m. in London after rising to 77.91 on Aug. 1, the strongest since June 1. Japan’s currency fell 0.1 percent to 97.17 per euro. The euro was little changed at $1.2407 after rising to $1.2444 yesterday, the highest level since July 5.
The MSCI Asia Pacific Index (MXAP) of shares gained 0.6 percent, after the MSCI World Index (MXWO) rose 0.7 percent yesterday.
The BOJ probably won’t change its view that Japan’s economy is picking up moderately, the Nikkei newspaper reported, without saying where it got the information. All 17 economists in a Bloomberg survey forecast the central bank will keep its benchmark overnight target rate at 0.1 percent at its two-day meeting starting tomorrow.
This will be the first central bank meeting with new board members Takahide Kiuchi and Takehiro Sato, who have both signaled willingness to consider fresh forms of easing.
The two “are known to be sympathetic to more unconventional easing, but like the RBA, a ‘wait and see’ stance by the BOJ is more likely now,” according to a research note from Brown Brothers Harriman & Co. analysts, including New York- based Marc Chandler, global head of currency strategy.
Finance Minister Jun Azumi told reporters in Tokyo that Japan will extend a facility to counter yen gains through fiscal year 2012. The International Monetary Fund said last week the currency is “moderately overvalued.”
Government data in February showed Japan last year carried out so-called stealth intervention, where officials refrain from confirming yen sales on the day they were executed. The nation sold 1.02 trillion yen against the dollar on the first four days of November in addition to 8.07 trillion yen on Oct. 31, the data showed.
“There are some risks of currency intervention if the yen strengthens beyond 78 per dollar, and that’s keeping the currency on the back foot,” said Daisaku Ueno, a senior currency and debt strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “The government and the BOJ carried out stealth intervention last year around that level, and global opposition against currency intervention has eased somewhat.”
The yen has appreciated 3.7 percent in the past three months among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 4.3 percent, and the dollar has gained 1.3 percent.
Demand for the euro was supported after Merkel’s government backed ECB President Mario Draghi’s proposals on bond buying to help bring down borrowing costs in Spain and Italy. Germany is “not worried” by Draghi’s announcement of Aug. 2, deputy Merkel spokesman Georg Streiter told reporters in Berlin yesterday, when asked whether the government is concerned the ECB’s independence may be compromised.
Draghi outlined a plan last week under which the ECB may buy debt of struggling euro-bloc countries in tandem with the euro area’s bailout fund, while saying the details still need to be worked out over the coming weeks.
“The fact that the German spokesperson made an official statement for the first time about the country’s backing of ECB’s bond purchases is supporting the euro,” said Ken Takahashi, assistant vice president of global markets at Sumitomo Mitsui Trust Bank Ltd. in New York. “The market is reassessing the ECB’s decision from last week and taking a more positive view on it.”
Italy’s Monti said disagreements within the euro area were detracting from the policy response to the debt crisis, according to an interview with Germany’s Der Spiegel magazine published Aug. 5.
Australia’s dollar climbed to the strongest since March after the Reserve Bank said current policy settings were “appropriate.”
The so-called Aussie rose against most of its major counterparts after RBA Governor Glenn Stevens and his board said in a statement the nation’s growth was close to trend.
“The RBA hasn’t really set out a case for lowering interest rates, so I suspect that’s probably maybe a surprise to the markets,” said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore. The overall statement “seemed to be quite bullish for the Aussie dollar.”
Australia’s dollar rose 0.2 percent to $1.0587 after reaching $1.0603, the strongest level since March 20.
-- With assistance from Lukanyo Mnyanda in Edinburgh, Kazumi Miura in Tokyo and Mika Otsuka in New York. Editors: Naoto Hosoda, Nicholas Reynolds
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